A jogger runs past the lotus pond outside the Art-Science Museum, right, as the sun sets in Singapore.

Singapore raised its growth forecast for 2013 after the economy unexpectedly expanded last quarter, supporting the central bank's decision to forgo stimulus for the Southeast Asian nation.

The economy will grow 3.5 percent to 4 percent in 2013 and expand as much as 4 percent next year, the trade ministry said in a statement today. It had previously forecast growth of as much as 3.5 percent in 2013. Gross domestic product expanded an annualized 1.3 percent last quarter from the previous three months, compared with a 1 percent decline estimated earlier.

Asian economies are benefiting from a demand pickup aided by the U.S. Federal Reserve's extension of monetary stimulus even as global risks remain from budgetary wrangling in Washington and a nascent recovery in Europe. Trade-dependent Singapore said today exports will rebound in 2014 after contracting this year, easing pressure on the central bank to allow its currency to weaken to support overseas shipments.

"We are in an expansionary phase even though we should not expect it to be too robust," said Edward Lee, regional head of research at Standard Chartered Plc in Singapore. "There are pockets of strength in external demand and that is adding to a resilient domestic economy."

The Singapore dollar has dropped about 2.1 percent against its U.S. counterpart this year. It fell 0.2 percent to S$1.2484 against the greenback as of 9:58 a.m. local time.

Slight pickup

"Externally-oriented sectors such as manufacturing, wholesale trade and transportation and storage are likely to support growth, in line with a slight pickup in the global economy," the trade ministry said today. "Domestically-oriented sectors such as construction and business services are also expected to remain resilient in the fourth quarter."

The 1.3 percent quarter-on-quarter expansion exceeded all 15 estimates in a Bloomberg survey, where the median was for a 0.3 percent drop. GDP (SGDPYOY) grew 5.8 percent in the three months through September from a year earlier, compared with an earlier estimate of a 5.1 percent expansion, today's report showed. The government forecasts growth of 2 percent to 4 percent in 2014.

The central bank said on Oct. 14 it will maintain a modest and gradual appreciation of the currency, forgoing stimulus as labor shortages and record home prices fuel inflation. Consumer prices rose at the slowest pace in four months in September. The policy stance remains appropriate, central bank Deputy Managing Director Jacqueline Loh told reporters today.

The Monetary Authority of Singapore guides the local dollar against a basket of currencies within an undisclosed band and adjusts the pace of appreciation or depreciation by changing the slope, width and center of the band.

Export volatility

The city state, home to one of the world's busiest container ports, has remained vulnerable to fluctuations in overseas demand for manufactured goods even as the government boosts financial services and tourism to cut reliance on exports.

Non-oil domestic exports will probably contract between 4 percent and 5 percent in 2013, worse than a previous forecast for shipments to be unchanged or rise 1 percent, the trade promotion agency said today. Exports are expected to grow between 1 percent and 3 percent next year, it said.

"We're seeing some green shoots coming from manufacturing recently," Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore, said before the report. "We're seeing improvement across Asia."

Fed officials said they might reduce their $85 billion in monthly bond purchases in coming months as the economy improves, minutes of their last meeting released yesterday showed.

Modest improvement

"The global economic outlook is expected to continue to improve modestly in 2014, supported by a slow recovery in the U.S. and euro zone," the trade ministry said today. "Uncertainties remain over how markets will react to the possible tapering of the quantitative easing program by the U.S. Federal Reserve, and whether the debt ceiling in the U.S. will be raised in a timely manner. The euro zone remains susceptible to a flare-up of the sovereign debt crisis."

Growth in Southeast Asia was mixed last quarter. Malaysia's economy expanded at the fastest pace in three quarters as exports recovered and domestic demand held up before Prime Minister Najib Razak raised fuel prices in September, while Indonesia's slowed as a declining rupiah restrained investment.

Thailand this week cut its growth forecast for the year after the economy expanded less than analysts estimated last quarter and as weakening exports damp the outlook for consumption and investment. Philippine growth will probably be slower than initially estimated in 2013 after Typhoon Haiyan devastated some provinces this month, economists predicted.

Singapore's manufacturing rose 0.1 percent last quarter from the previous three months, compared with an Oct. 14 estimate of a 3.4 percent decline. The services industry expanded 2.8 percent in the same period, while construction contracted 2.5 percent.